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City&Country: Cover Story-- Grand dame of KL shopping

Known as the “River of Gold” Sungei Wang Plaza,  is a unique mall sitting in the heart of the Bukit Bintang shopping hub of Kuala Lumpur, and one of the oldest strata-titled malls in the Klang Valley.

Developed in 1977, the layout of numerous corridors and walkways, and the facade with its name emblazoned on it speaks of the era. Despite looking like the odd one out among the newer malls, the 33-year-old shopping centre is constantly busy and packed to the rafters with shoppers during weekends.
 
The secret to its lasting appeal, says Yong Kei Seng, general manager of CapitaMalls Asia Ltd, is the tenancy mix and its distinctly local flavor. Crammed with small outlets, averaging 300sq ft to 1000 sq ft and kiosks, one can find an eclectic blend of offerings, ranging from the latest fancy fashion wear, tattoo shops to unique collectibles and F&B kiosks in psychedelic colours. There is even a restaurant with a toilet theme with toilet bowls as seats and miniature toilet bowls as serving dishes.

“In every major city, there is always one shopping mall like Sungei Wang. Lucky Plaza in Singapore is an example. In malls like these, you can find a wide variety of products both local and imported, and there is a bazaar concept to it that gives it a local feel. So, it’s a different offering from the other contemporary malls,” adds Yong.

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Aside from tourists, the mall attracts a substantially younger crowd due to its affordable and trendy offerings. “In fact, Sungei Wang has long been known as the place to get the latest fashions, especially for youngsters,” says Yong.

Singapore-based CapitaMalls Asia owns about 60% of the retail units in Sungai Wang and it is one of the three Malaysian malls owned by CapitaMalls Asia. The other two are Gurney Plaza in Penang and The Mines in Seri Kembangan, Selangor.

CapitaMalls entered the Malaysian retail market with its acquisition of Gurney Plaza in November 2007. This was shortly followed by the acquisition of The Mines in Sri Kembangan in December 2007 and then Sungei Wang Plaza in June 2008.

The three properties were acquired for about RM1.8 billion, and CapitaMalls has invested slightly over RM100 million for asset enhancement initiatives (AEI) and other upgrades.

Securing a unit in Sungei Wang has always been difficult as there is always a queue of retailers waiting to come in.

Transactions are also rare, according to an owner of more than 15 units as most owners, particularly those who bought the units in the 1970s and 1980s hold on to their shops due to the high rental yields.

The onwer who purchased a unit in the early 1980’s for RM635 psf, estimates the current selling price for the shops to range from RM3,000 psf to RM18,000 psf, while rents range from RM15 psf to RM60 psf, both depending on floor and location. Comparatively, according to SunREIT’s prospectus, Sunway Pyramid in Petaling jaya averages a monthly rental of RM8.99 psf as of February 28, 2010 and has an average occupancy rate of 99.3%.

According to Allan Soo, managing director of CB Richard Ellis (Malaysia) Sdn Bhd, the other thing that makes Sungei Wang unique is that it has over 700 outlets. “It has strength in numbers, and so much draw in terms of variety and critical mass. Because of the numbers of shops and the layout of the mall, it gives shoppers the thrill of a ‘hunt’ feel. You will not get bored shopping there,” Soo tells City & Country.

Currently, Soo sees Berjaya Times Square, located down the road from Sungei Wang along Jalan Imbi as its main competitor. However, he adds, Bukit Bintang itself is a draw, with the cluster of shopping malls like Pavilion, Lot 10 and Fahrenheit 88 in the area, and that makes Sungei Wang’s future a lot more sustainable.

“While Sungei Wang can offer merchandise that cannot be found elsewhere, there is bound to be some similar with Berjaya Time Square. But that is not a big issue as, with all these well-connected malls in close proximity to each other, people will shop from one end to another. The real differentiation is actually the price — people will look for the best bargains,” says Soo.

And to CapitaMalls’ Yong, that is a good reason why Sungei Wang will never go high-end, as it will then lose its uniqueness.

Partnerships with retailers
Sungei Wang was carved out as a strata-titled mall when it was first developed by Sungei Wang Plaza Sdn Bhd in 1977. CapitaMalls now owns 61.9% of the units, or a net lettable area (NLA) of 450,470 sq ft, which Yong says give them the flexibility to carry out reconfiguration works and change the tenancy mix when needed.

However, strata-titled malls are often more difficult to manage compared with single-ownership malls as it involves numerous parties and offers less control over the tenancy mix.

CapitaMalls does not find this an issue as Yong says the company has made it a practice to form partnerships with the other owners as well as the tenants.

“When we first acquired parcels in Sungei Wang, we invited all the other owners to come together and work with us as team to upgrade and maintain the mall,” says Sharon Lim, country head of CapitaMalls Asia, Malaysia.

Gaining trust and maintaining integrity are CapitaMalls’ priorities, not just in relation to Sungei Wang but also the Malaysian market. “People may have heard of us but they do not know us. They see us as the new kid on the block, which is why we have to show our capabilities within one or two years. The market is very unforgiving; you come in, you’d better show what you can do. If you don’t, no one will trust you,” says Lim.

“Sungei Wang has actually evolved over the years. It would not have survived nor be where it is today if the tenancy mix was not ideal. The retailers are entrepreneurs; they bring in merchandise that will sell. The mall stabilises itself, so we do not really need to control the tenancy mix,” adds Yong.

The mall is managed by Sungei Wang Plaza Management Corporation,comprising a number of unit owners including CapitaMalls.

“We work very well together because we are transparent in terms of what we plan to do and how it can benefit the tenants and owners. We want to make sure that together we can enhance the value of the mall,” says Yong of the management corporation.

Yong stresses that just because CapitaMalls has majority representation, it does not mean they will disregard the opinion of others. Related matters, be it operational or proposed asset enhancement initiatives (AEI), will be discussed at the management corporation meetings to seek a consensus.

CBRE’s Soo agrees that the successful management of a strata-titled mall is a major contributing factor to its popularity. “The continuing success of Sungei Wang confounds all logic — it is a strata-titled mall with a traffic-unfriendly layout and it is old,” Soo says.

“Many strata-titled malls are not well-managed and this often leads to disagreements between the various owners and tenants. Sungei Wang is an exception,” he adds.

Recently, the management corporation agreed to raise all owners’ contribution to RM1.70 psf based on strata area, from the previous RM1.20 psf. This effectively provides the management corporation about RM4 million to RM5 million a year to upgrade the mall.

Asked whether CapitaMalls is looking at acquiring more space in Sungei Wang, Yong says they are comfortable with its current holdings.

Increasing capital value
Since acquiring a stake in Sungei Wang in June 2008, CapitaMalls has added value to the space it owns.
“As with any asset we invest in, we will look at the enhancement opportunities to increase the capital value of the mall and what we can do to enable us to cater for consumer preferences as well as how we are able to reposition the mall,” says Yong.

In March 2009, CapitaMalls took back the concourse space occupied by anchor tenant Parkson Grand and configured it into 23 smaller units, effectively converting the space into higher-yielding specialty outlets.

CapitaMalls spent RM1.5 million on the reconfiguration and even though the NLA was reduced to 19,070 sq ft from 25,532 sq ft (the reduction of NLA was due to space taken for the walkways), the average rent for this area has increased from RM5.15 psf to RM17.97 psf.

“The initiative has enhanced retail offerings and there’s a combination of retail and F&B outlets. The estimated return on investment (ROI) is 136%. If the ROI were 100%, it would take a year for us to recover the investment. ROI of 136% means that it will take less than a year,” explains Yong.

Another notable AEI was conducted on the third floor to address the lack of F&B outlets. According to Alicia Yuen, centre manager of Sungei Wang Plaza, there is a gap between the number of F&B and retail outlets. The F&B outlets were also located all over the mall, making it harder for shoppers to locate them.
“We consciously looked at the issue, which is why we created more F&B outlets in the concourse area and on the third floor,” Yong explains.

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The third floor used to serve as the IT section of Sungei Wang. However, due to strong competition from Low Yat Plaza located next to door, many of the retailers were unable to sustain their businesses.

Shops were therefore taken back upon expiry of the tenants’ leases. The space was then configured to create about 12 F&B outlets and kiosks with open seating areas.

About RM1.7 million was spent on the initiative, and an additional 2,007 sq ft NLA was added, bringing NLA to 13,690 sq ft with an estimated ROI of 19%.

“We also want to increase traffic to the area as visibility and traffic can be compromised due to a lack of a visible line of sight. Because of this, we made sure that the height of the counters is about 1.2m so that there is always a clear line of sight across the whole area to enable shoppers to see the other outlets and draw more traffic to the outlets,” says Yong.

Much emphasis has also been placed on shop-front designs and tenants are encouraged to follow the in-house tenancy design department’s guidelines. “This is how we help the tenants. Our designers work with them to give suggestions on the concept, display, lighting and signage based on our experience dealing with retailers over the years. They do appreciate our input as it creates something fresh and new for them and for the shoppers,” says Yuen.

“We know what kind of shopfront design attracts shoppers. Each is unique, not like as it used to be when every shop was a standard box space. Actually, when we first went into China, other owners saw the results of our redesigned shop fronts and wanted to invest money in creating new shop fronts,” adds Yong.

CapitaMalls owns 50 malls valued at S$6.8 billion in China, amounting to 15.2 million sq ft NLA with an occupancy rate of 95.7% as of Dec 31, 2009.

Ultimately, the idea is to create a modern look for the mall in order to keep it trendy, though the businesses remain the same.

Marketing activities such as fashion shows and mini-concerts are regularly held to bring in more traffic to the mall and generate more business for the tenants, says Yuen.

“The business will improve and over time, we can command higher rents,” adds Yong.

However, Yong stresses that, just because they have upgraded the mall, it does not mean they will demand much higher rent from the tenants.

“We look at their occupancy cost as a way to track the health of the tenants. We cannot charge them higher rents than they can afford. We always make sure our tenants can survive,” says Yong.

Tenants are required to submit their monthly sales figures to enable CapitaMalls to monitor their occupancy cost. “From data collected over the years, we know how much a certain area can command, and roughly how much sales the tenants can make,” says Yong.

“Every trade is different. For example, supermarket profit margins are not as high as fashion retailers. So fashion retailers can sustain at a higher occupancy cost. By tracking their occupancy cost, we would know when to get a replacement tenant ready: Because how long can a business survive losing money? Overall, on average, we change about 20% of our tenants a year; that is normal for our trade,” adds Lim.

Malaysia’s retail potential
Yong believes there are still opportunities in Malaysia’s retail shopping mall market.

He cites three main growth drivers for the local market: growing affluence, urbanisation and rising private consumption.

“There is talk of oversupply of retail space in the Klang Valley, but the population of the Klang Valley keeps on increasing due to migration locally and from abroad,” says Yong.

He acknowledges that there are some malls that are not doing well. However, he attributes the problem to a lack of management expertise and in the case of strata-titled malls, the inability of the management to work with owners and tenants.

According to latest data obtained from the National Property Information Centre (NAPIC), as of 1Q 2010 the average occupancy rate for shopping centres in Kuala Lumpur stands at 83.3%, Selangor at 87% and a national average of 78.9%.

In order to keep up with the fast-moving retail market, CapitaMalls is constantly looking into ways to reposition its malls or changing its tenancy mix if necessary, adds Yong.

To maintain its occupancy rates, Lim says, “We look at how many tenancies are due this year. Then, we decide how many we want to keep, then we will look at bringing new tenants in. Our standard lease is three years.”

While Yong declines to reveal details of any new acquisitions by CapitaMalls in the near future, he says, “We are here for the long term, we will explore the possibilities of acquiring new malls, either through acquisition or through joint ventures with local developers.”

However, the malls have to meet certain criteria in terms of catchment, opportunity for enhancement, the tenancy mix, the characteristics of the mall, returns on the property and ownership control for strata title malls.

Since acquiring the three malls, CapitaMalls has increased its total NLA by 4.5% from 1,796,874 sq ft to 1,877,536 sq ft, an increase of 18.5% in average rent psf per month and boosted occupancy by 3.4% from an average of 94.2% to 97.4%.

Based on these figures, Lim estimates a time frame of around 15 years to achieve ROI.

The biggest portion of revenue is split almost equally between Gurney Plaza and Sungei Wang Plaza, at about 40% of total revenue each. Lim expects earnings before interest and tax (Ebit) to grow by 5% y-o-y for 2010.

“We are in the class of assets we call mass market, which is more resilient. Good times or bad, people still need to shop and eat. We are not in the high-end or in one distinct area of the target market. So, it cuts across the general market,” says Lim.

“Every state and every city can have more than one mass-market mall. In Malaysia, as long as there is population catchment of 300,000 to 400,000, you can build a suburban mall. The day-to-day shopping is actually a bigger business scope,” reasons Lim.

Meanwhile, Ng Kok Siong, chief financial officer of CapitaMalls Asia, told reporters during a recent media visit to its malls in Singapore and Malaysia that the company plans to invest up to RM3.5 billion over the next two to three years to build or acquire new malls in Malaysia.

For FY2009 ended Dec 31, Malaysia contributed RM190 million in revenue and S$52.4 million (about RM123 million) in Ebit. The three Malaysian malls are now valued at about RM2.13 billion.

Ng expects the number of malls it owns and operates in Malaysia to be doubled within the next five years, adding that the company would consider partnering with another company, though CapitaMalls must have control of the operations.

Hypermarkets are also a possibility, says Ng. However, they must meet CapitaMalls criteria for selection of assets — NLA of between 300,000 and 400,000 sq ft and a catchment of 400,000 within a 20-minute driving radius.

If it is an integrated development, at least 65% of the gross floor area or asset value must be retail, adds Ng. If the retail space is less than 65%, CapitaMall will consider a joint venture with CapitaLand Ltd.

Regionally, CapitaMalls has allocated about S$2 billion to S$3 billion for investment, much of which is most likely to be channelled into Malaysia, China and India.

On June 11, CapitaMalls Asia announced that the group had obtained approval from the Securities Commission of Malaysia to list CapitaMalls Malaysia Trust (CMMT) on the Main Market of Bursa Malaysia Securities Bhd.

CMMT, comprising the three malls in Malaysia, will offer 786.5 million shares, with CapitaMalls Asia retaining a stake of 41.74%.

The company says the planned listing of CMMT will enable CapitaMalls Asia to accelerate growth in Malaysia, and develop fee-based income for the company.

However, the decision to proceed with the proposed listing depends on a number of factors including prevailing market conditions, it added.

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 811, June 21-27, 2010


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